Prime Minister explains failure of Zarea hotel privatization, announces changes for future auctions

The high financial threshold for participating in the auction, the short deadline for paying for the transaction, and uncertainties regarding the approval of permits required for reconstruction were the main problems that led to the failure of the privatization auction for Zarea Hotel in Chișinău. The statements were made by Prime Minister Vasile Tofan at the beginning of today’s government meeting.

The prime minister said that the state does not have the resources needed to invest hundreds of millions of lei in renovating the hotel and that the solution is to privatize it under transparent conditions.


“Zarea Hotel has 136 rooms and perhaps one of the best locations in Chișinău, next to the National Bank and the Academy of Economic Studies. But it generated a profit of 29,000 lei. (...) We must not fool ourselves into thinking that we now have to take the very little money we have and bury it in renovating Zarea Hotel, which will cost hundreds of millions of lei. We cannot do that. All we can do is privatize it in a transparent manner,” Vasile Tofan said.


He said that the authorities must analyze the reasons why the privatization attempt failed and adjust the conditions for future auctions.

One of the problems identified is the amount of the deposit required to participate in the auction. The starting price for Zarea Hotel was set at 106 million lei, and under current legislation, participants must deposit 10% of that amount, which represents approximately 11 million lei.


“Even large companies do not have this money available to withdraw immediately and place 11 million lei in an account just to participate,” the prime minister explained.


Another difficulty is the 20-day deadline for completing the transaction, which, in his opinion, limits buyers’ ability to obtain bank financing. Tofan announced that the authorities should extend the payment deadline to at least 60 days so that more companies can participate in auctions.


“We must extend the payment period to at least 60 days, including in order to increase the number of companies that can obtain bank financing to participate in an auction, because this is a universal practice. No one buys solely with their own capital. People also use loan financing for this purpose,” the prime minister said.


Another issue raised by potential investors concerns the uncertainties surrounding the issuance of the permits required to reconstruct the buildings. In the case of Zarea Hotel, its proximity to Alexander Pushkin House Museum could generate additional requirements and delays in the approval process.

According to the prime minister, investors fear that after purchasing such an asset, they could wait for years to obtain the necessary approvals without being able to begin the work.


“When we put an asset up for privatization, it must come with an indicative package regarding the applicable urban planning restrictions, preliminary approvals, and guidance from the National Council for Historic Monuments. We must not imagine that someone will pay hundreds of millions of lei and then be left with an asset that is completely blocked,” Vasile Tofan emphasized.


The prime minister stated that the authorities are taking responsibility for the lessons learned from this privatization attempt, which failed approximately 20 years after the process was initiated, and that they will continue efforts to transparently capitalize on state assets.


“These are important lessons. We accept the lessons from this privatization attempt, which has failed once again after 20 years, but we are not giving up. I believe we must move forward and apply these lessons to other privatizations,” he concluded.